Principles of Auditing

Quiz 1
1. Assurance Engagements require independence on the part of the auditor.
 True
 False
2. The degree of satisfaction achieved (the level of assurance which may be provided) is
directly related to the scope of procedures performed and their results.
 True
 False
3. Assurance refers to the responsible party’s satisfaction as to the reliability of an assertion
being made by one party for use by another party.
 True
 False
4. Assurance engagements performed by professional accountants are intended to enhance
the credibility of information.
 True
 False
5. An engagement may be classified as an assurance engagement once it meets all six
elements required by the Framework for Assurance Engagements
 True
 False
6. The responsible party and the intended user need to be from separate organizations.
 True
 False
7. A professional accountant may agree to perform an assurance engagement which they are
not competent to carry out
 True
 False
8. The responsible party or parties is the person(s) responsible for the subject matter
 True
 False
9. The responsible party is always the one who engages the accountant
 True
 False
10. The intended user is the person who engages the professional accountant/ CPA
 True
 False
11. The responsible party may also be one of the intended users
 True
 False
12. The subject matter of an assurance engagement may be presented as point in time or
covering a period of time.
 True
 False
13. Criteria are the standards of benchmarks used to evaluate or measure the subject matter of
an assurance engagement.
 True
 False
14. In the case of an audit of financial statements the suitable criteria to be used are
Philippine Standards n Auditing
 True
 False
15. Appropriateness refers to quantity while sufficiency refers to quality of evidential matter
 True
 False
16. Evidence obtained directly by the practitioner is less reliable than evidence obtained
indirectly or by inference
 True
 False
17. The responsible party expresses a conclusion that provides a level of assurance as to
whether the subject matter conforms in all material respects with the identified suitable
criteria
 True
 False
18. In an attestation engagement, the professional accountant expresses a conclusion on the
subject matter based on suitable criteria, regardless of whether the responsible party has
made a written assertion about the subject matter
 True
 False
19. The CPA conclusion provides a level of assurance about the subject matter
 True
 False
20. Absolute Assurance is attainable owing to the fact that much of the evidence available to
the CPA is persuasive rather than conclusive.
 True
 False
MCQ
1. Which of the following statements best describes assurance services?
a. Services designed to express an opinion on the fairness of historical financial
statements based on the results of an audit.
b. Independent professional services that are intended to enhance the credibility of
information to meet the needs of an intended user
c. The preparation of financial statements or the collection, classification, and
summarization of other financial information
2. How many separate parties are involved in assurance engagement?
a. 4
b. 3
c. 2
d. 5
3. An assurance engagement should have which of the following elements?
1. Subject Matter
2. Criteria
a. No No
b. No Yes
c. Yes No
d. Yes Yes
4. Which of the following is not an assurance service?
a. Compilation of financial information
b. Audit of historical financial information
c. Examination of prospective financial information’
d. Review of financial statements
5. The subject matter of an assurance engagement may include:
1. Financial Information
2. Internal Controls
3. Compliance w/ Regulation
a. Yes No Yes
b. No No No
c. Yes Yes Yes
d. No Yes No
6. For assurance engagements regarding historical financial information, reasonable
assurance engagements are called
a. Compilations
b. Examinations
c. Audits
7. Relevant criteria contribute to conclusions that are
a. Clear and comprehensive
b. Useful for decision making
c. Free from bias
d. Subject to different interpretations
8. Criteria are embodied in laws and regulations, or issued by authorized or recognized
bodies of experts that follow a transparent due process are called
a. Specifically developed criteria
b. Established criteria
c. Suitable criteria
9. In an assurance engagement, the outcome of the evaluation or measurement of a subject
matter against criteria is called
a. Subject matter
b. Conclusion
c. Subject matter information
d. Assurance
10. In some assurance engagements, the evaluation or measurement of the subject matter is
performed by the responsible party, and the subject matter information is in the form of
an assertion by the responsible party that is made available to intended users. These
engagements are called
a. Recurring engagements
b. Non-assurance engagements
c. Direct reporting engagements
d. Assertion-based engagements
11. A practitioner’s assurance report contains the following conclusion:
Based on our work described in this report nothing has come to our attention that causes
us to believe the internal control is not effective, in all material respects, based on ABC
criteria.
What type of assurance engagement was performed?
a. Reasonable assurance engagement
b. Negative assurance engagement
c. Positive assurance engagement
d. Limited assurance engagement
12. In an assertion-based assurance engagements, the evaluation or measurement of the
subject matter against criteria is performed by the
a. Practitioner
b. Responsible party
c. AASC
d. Intended Users
13. In an assurance engagement, the responsible party and the intended users
a. Are both responsible for determining the nature, timing, and extent of the procedures
to be performed
b. Should be from different entities
c. May be from the same entity or different entities
d. Should be from the same entity
14. The criteria against the subject matter of the assurance engagement is to be evaluated or
measured should possess which of the following characteristics?
1. Relevant
2. Concise
3. Neutral
a. No Yes No
b. No Yes Yes
c. Yes No No
d. Yes No Yes
15. In an assurance engagement, the person or persons, either as individuals or
representatives of an entity, responsible for the subject matter is the
a. Responsible party
b. Client
c. Intended user
d. Professional accountant
16. In an assurance engagement, the person or class of persons for whom the professional
accountant prepares the report for a specific use or purpose is the
a. Intended user
b. Responsible party
c. Management
17. What type of assurance engagement is involved, when the practitioner expresses a
positive form of conclusion?
a. Reasonable assurance engagement
b. Positive assurance engagement
c. Absolute assurance engagement
d. Limited assurance engagement
18. What type of assurance engagement is involved, when the practitioner expresses a
positive form of conclusion?
a. Reasonable assurance engagement
b. Negative assurance engagement
c. Assertion-based assurance engagement
 d. Limited assurance engagement
19. A proposed assurance engagement can be accepted when the practitioners’ preliminary
knowledge about the engagement circumstances indicates that relevant ethical
requirement will be satisfied and
I. The subject matter of the engagement is appropriate
II. The criteria to be used are suitable and are available to the intended users
III. The practitioner has access to sufficient appropriate evidence to support the
conclusion
IV. The conclusion is to be contained in a written report
a. I, II, and III only
b. I, II, III, and IV
c. I, III, and IV only
d. I, II and IV only
20. Assurance engagement risk is the risk
a. Through loss from litigation, adverse publicity, or other events arising in connection
with the subject matter reported on
b. Of expressing an inappropriate conclusion when the subject matter information is
either materially misstated or not materially misstated
c. That the practitioner expresses an inappropriate conclusion when the subject matter
information is materially misstated
d. If expressing an inappropriate conclusion when the subject matter information is not
materially misstated
21. Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial as
a result of the following factors, except
a. The fact that much of the evidence available to the practitioner is persuasive rather
than conclusive
b. The use of selective testing
c. The practitioner may not have the required assurance knowledge and skills to gather
and evaluate evidence
d. The use of judgement in gathering and evaluating evidence and forming conclusions
based on that evidence.
22. What level of assurance is provided by the auditor in an audit engagement
a. No assurance
b. Absolute
c. High but not absolute
d. Moderate
23. Reports on agreed upon procedures are intended to be distributed
a. Only to the stockholders of the entity
b. To only the involved parties, who are aware of the reasons for the procedures
c. To any party to whom the client wishes
d. Only to the entity’s management
24. In an compilation engagement, the practitioner applies accounting and financial reporting
expertise to assist management in the preparation and presentation of financial
information of an entity in accordance with an acceptable financial reporting framework.
What type of assurance is provided by the practitioner when he/she performs this
engagement?
a. Negative assurance
b. No assurance
c. Positive assurance
d. Limited assurance
25. In an engagement to perform agreed upon procedures, an auditor is engaged to
a. Carry out those procedures of an audit nature to which the auditor and the entity and
any appropriate third parties have agreed and to report on factual findings
b. Provide a high, but not absolute, level of assurance that the information its free of
material misstatement
c. Provide a moderate level of assurance that the information is free of material
misstatement
d. Apply accounting and financial reporting expertise to assist management in the
preparation and presentation of financial information of an entity in accordance with
an applicable financial reporting framework
Quiz 2 –A
1. The purpose of an audit of financial statements is to
a. Relieve management or those charged with governance of the responsibility for the
preparation and presentation of the financial statements
b. Enhance the degree of confidence of intended users in the financial statements
c. Assure the future viability of the entity by expressing an opinion on the entity’s
financial statements
d. Obtain an absolute level of assurance that the financial statements as a whole are free
from material misstatement
2. Which of the following is a typical objective of an operational audit?
a. To determine whether an entity’s internal control system is adequately operating as
designed
b. To determine whether an entity’s financial statements present fairly the results of
operations
c. To determine whether an entity’s operational information is in accordance with PFRS
d. To determine whether an entity’s specific operating units are functioning efficiently
and effectively
3. The primary orientation of operational auditing is towards
a. The accuracy of the data reflected in management’s financial records
b. Past protection provided by existing internal control
c. Future improvements to accomplish the goals of management
d. The verification that a company’s financial report is fairly presented
4. What is the proper organizational role of internal auditing?
a. To serve as an independent, objective assurance and consulting activity that adds
value to operations
b. To serve as the investigative rm of the audit committee of the board of directors
c. To perform studies to assist in the attachment of more efficient operations
d. To assist the external auditor in order to reduce external audit fees
5. Which of the following is considered a primary reason for creating an internal audit
department?
a. To safeguard resources entrusted to the organization
b. To evaluate and improve the effectiveness of control processes
c. To ensure the accuracy, reliability, and timeliness of financial and operating data used
in management decision making
d. To relieve management of the responsibility for establishing effective controls
6. In conducting an appraisal of the economy and efficiency with which company resources
are used, an internal auditors’ responsibility is to
a. Review the reliability of operating information
b. Verify the accuracy of asset valuation
c. Determine whether operating standards have been established
d. Verify the existence of assets
7. Governmental auditing often extends beyond examinations leading to the expression of
opinion on the fairness of financial presentation and includes audits of efficiency,
economy, effectiveness and also
a. Evaluation
b. Compliance
c. Accuracy
d. Internal Control
8. A governmental audit may extend beyond an audit leading to the expression of an
opinion on the fairness of financial presentation to include
Program Results Compliance Economy & Efficiency
a. Yes Yes No
b. Yes No Yes
c. No Yes Yes
d. Yes Yes Yes
9. What is the responsibility of an auditor who is engaged to audit the financial statements
of government entity?
 a. Design the audit to provide reasonable assurance that the statements are free of
material misstatements resulting from illegal acts having direct or indirect effects
b. Assist control risk with respect to each component of internal control
c. Obtain an understanding of the possible financial statement effects of laws and
regulations having direct and material effects on amounts reported
d. Assume responsibility of assuring that the entity complies with applicable laws and
regulations
10. The objective of governmental effectiveness or program auditing is to determine if the
desired results of a program are being achieved. What is the first step in conducting such
an audit?
a. Identify the legislative intent of the program being audited
b. Evaluate the system used to measure results
c. Collect quantifiable data on the programs’ success or failure
d. Determine time frame to be audited
11. Auditing includes both an
a. Investigative process and reporting process
b. Documentation process and reporting process
c. Documentation process and an evaluation process
d. Evaluation process and a reporting process
12. The auditor is required to comply with all PSAs relevant to the audit of an entitys
financial statements. A PSA is relevant to the audit when
I. The PSA is in effect
II. The circumstances addressed by the PSA exist
a. Either I or II
b. Both I and II
c. II only’
d. I only
13. This type of audit is performed to determine whether an entity’s financial statements are
fairly stated in conformity with generally accepted accounting principles
a. Internal audit
b. Financial statements audit
 c. Operational audit
d. Compliance audit
14. The auditor is required to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to fraud or error. In all cases
when reasonable assurance cannot be obtained the auditors’ report should contain an
a. Qualified or adverse opinion
b. Disclaimer of opinion
c. Qualified or disclaimer of opinion
d. Unmodified opinion
15. The primary reason for a financial statement audit by an independent CPA is to
a. Guarantee that there are no misstatements on the financial statements and ensure that
any fraud will be discovered
b. Provide increased assurance to users as to the fairness of the financial statements
c. Satisfy governmental regulatory requirements
d. Relieve management of responsibility for the financial statements
16. Which of the following statements is correct concerning an auditors’ responsibilities
regarding financial statements?
a. Making suggestion that are adopted about the form and content of an entity’s
financial statements impairs an auditors’ independence
b. An auditors’ responsibilities for audited financial statements are confined to the
expression of the auditors’ opinion
c. An auditors’ responsibilities for audited financial statements are confined to the
expression of the auditors’ opinion
d. The auditors’ report should provide an assurance as to the future viability of the
entity.
17. The primary responsibility for the adequacy of disclosure in the financial statements rest
with the
a Securities and Exchange Commission
b Auditor in charge of the field work
c Partner assigned to the audit engagement
d Partner assigned to the audit engagement
 18. Which of the following elements does not relate to audit quality
a. Audit competence
b. Audit fees
c. Due Diligence
d. Independence
19. Which of the following groups could be involved in an operational audit
CPA Firms Internal auditors Government Auditors
a. No Yes No
b. Yes No No
c. Yes Yes No
d. Yes Yes Yes
20. The term efficiency in performance auditing refers to
a. Using resources to maximize output for a given input, or to minimize input for any
given quantity and quality of output
b. The acquisition of resources at appropriate times and within specified time frame
c. The achievement of objectives within a specified time frame
d. The achievement of intended results of operations, programs or activities

Quiz 2- B
1. A profession is distinguished by certain characteristics including
a. Adherence by its members to a common code of values and conduct established by tis
administering body, including maintain an outlook which is essentially objective
b. Mastery of a particular intellectual skill, acquired by training and education
c. Acceptance of a duty to society as a whole
d. All of these
2. Which of the following is not mentioned as a power of the Board
a. To issue, suspend, revoke, or reinstate the Certification of Registration for the
practice of the accountancy profession
b. To sentence to imprisonment CPAs who have not been found guilty of violations of
the Accountancy Act
c. To supervise the registration, licensure, and practice of accountancy
d. To monitor the conditions affecting the practice of accountancy
3. Which of the following is not mentioned as a power of the Board
a. To prescribed and/or adopt a Code of Ethics for the practice of accountancy
b. To supervise the PICPA
c. To conduct an oversight into the quality of audits of financial statements
d. To issue a cease or desist order to any person, association, partnership, or corporation
engaged in violation of any provision of the Act
4. Which of the following is the accredited national professional organization of CPAs in
the Philippines
a. SEC
b. Board of Accountancy
c. Association of CPAs in Public Practice
d. Philippine Institute of CPAs.

5. Which of the following is the sectoral organization for CPAs in commerce and industry
a. ACPAPP
b. ACPACI
c. ACPAIC
d. CPACCI
6. This standard setting body replaces the Auditing Standards and Practice Council (ASPC)
and is tasked to develop and issue Philippine standards on auditing and related
interpretations
a. Financial Reporting Standards Committee
b. Financial Reporting Standards Council
c. Accounting Standards Board
d. Auditing and Assurance Standards Council
7. This body is created to assist BOA in the attainment of the objective to continually
upgrade accounting education in the Philippines, thus making Filipino CPAs globally
competitive
a. Council of CPAs in Education
b. Accounting Teachers’ Council
c. Education Technical Council
 d. PICPA CPD Council
8. A candidate successfully passes the board exam if he/she obtains
a. A general weighted average of 75%
b. A general weighted average of 65%
c. A general weighted average of 75% with no grades lower than 65% in any given
subject
d. A general weighted average of 75% in at least a majority of subjects given in the
board exam
9. A candidate who fails in 2 complete examinations shall be
a. Reverted to undergraduate status
b. Required to take a refresher course before making another attempt at the CPA board
exams
c. Forever banned from taking another set of examinations
10. A certification of which bears the registration number, date of issuance with an expiry
date, due for periodic renewal, duly signed by the Chairperson of the PRC and issued by
the PRC to a registered CPA upon payment of the registration fees
a. Registration
b. Quality Review
c. Accreditation
d. Identification
11. A professional identification card has a validity of
a. 6 years
b. 5 years
c. 4 years
d. 3 years
12. Registration of the accounting profession include
a. Regulation within the profession, through the implementation of the Code of Ethics
b. Regulation within the firm, through the implementation of a system of quality control
c. Public regulation as provided for in the Philippine Accountancy Act of 2004
d. All of these
13. The area of practice of accountancy namely, public accountancy, commerce and industry,
academe/education, and government
a. Section
b. Line
c. Segment
d. Sector
14. The fundamental principles of Code of Ethics include the following
a. Confidentiality
b. Independence
c. Professional Competence and Due Care
d. Objectivity
15. The following situations constitute a practice of public accountancy except
a. Rendering of services to more than one client on a free basis
b. Holding out oneself as one skilled in the knowledge, science, and practice of
accounting and as qualified person to render professional services as CPA
c. Instruction of Accountancy students on accounting
d. Performance of external audit services
16. The following are regarded by RA 9298 as CPA services in public practice if offered or
rendered on a free basis and to more than one client (select the exception)
a. Representation of clients before governmental agencies on tax and other matters
regardless of its relation to accounting
b. Professional assistance on accounting procedures
c. Design and installation of accounting system
d. Preparation and signing of audit reports
17. The government agency tasked by law of implementing and enforcing the regulatory
policies of the national government with respect to the regulation and licensing of various
professions and occupation under its jurisdiction
a. Professional Regulation Commission
b. Department of Justice
c. Professional Regulatory Board of Accountancy
d. Commission on Audit
 18. Which of the following is not a qualification of the members of BOA
a. Must be a duly registered CPA with at least 10 years of work experience in any scope
of practice of accountancy
b. Must not have any pecuniary interest, direct or material indirect, in any school,
college, university or institution conferring BS Accountancy
c. Must be of good character and must not have been convicted for crimes involving
moral turpitude
d. Must be a natural born Filipino citizen and a resident of the Philippines
19. No member of the board shall serve in the BOA for more than
a. 12 years
b. 9 years
c. 3 years
d. 6 years

SW 1
1. The person or persons conducting an audit engagement is known as the auditor
 True
 False
2. One of the primary reasons for an independent audit is the inherent potential conflict
between an entity’s management and other users of financial statement
 True
 False
3. An audit, if properly conducted, ensures that fraud is prevented
 True
 False
4. The use of selective testing is one of the reasons why auditors can provide reasonable (but
not absolute) assurance on the fairness of statements
 True
 False
5. A typical objective of an operational audit is for the auditor to make recommendations for
improving performances
  True
 False
6. Compliance audits are used to determine adherence to rules and regulations set by the
auditor
 True
 False
7. Internal auditing is a managerial control which functions by measuring and evaluating the
effectiveness of other controls
 True
 False
8. An operational audit conducted by an internal auditor is intended to provide an aid in the
independent auditor examining the financial statements
 True
 False

9. The major beneficiaries of an internal audit are management and third party users of the
financial statement
 True
 False
10. Auditors must have independence and freedom from management constraint
 True
 False
11. An external audit benefits the public
 True
 False
12. The essence of an independent audit is to determine whether the client’s financial
statements complied with generally accepted auditing standards
13. The main difference between auditors and accountants is the auditors ability to interpret
PSAs
 True
  False
14. The primary objective of a financial statement audit is to determine compliance with
internal and external requirements, and seek necessary improvements to maximize the
reliability of accounting data and company efficiency
 True
 False
15. An independent auditor may participate in preparing financial statements, including
accompanying notes
 True
 False

16. The independent audit is important to readers of financial statements because it involves
the objective examination of and reporting on management prepared statements
 True
 False
17. An independent audit aids in the communication of economic data because the audit
guarantees that financial data are fairly presented
 True
 False

18. After conducting an audit and release of the auditor’s report, the primary responsibility on
the fairness of the financial statements is shifted to the   auditor.
 True
 False
19. Financial statements are assertions by an organization’s management and
are, therefore the responsibility of management.
 True
 False
20. Information risk is the risk that information provided to users may be
materially misstated.
 True
  False

SW 2
1. The firm should establish a system of quality control designed to provide it with
reasonable assurance regarding:
a. Appropriateness of reports issued by the firm or engagement partners
b. Compliance with regulatory and legal requirements
c. All of these 
d. Compliance with professional standards
2. A process designed to provide an objective evaluation, before the report is issued, of the
significant judgements the engagement team made and the conclusions they reached in
formulating the report

a.   Engagement quality control review 

b. Monitoring
c. Peer review
d.  Inspection

3. In relation to completed engagements, these are procedures designed to provide evidence

of compliance by engagement teams with the firm’s quality control policies and
procedures.
a. Inspection 
b. Peer review
c. Monitoring
d. Engagement quality control review

4. An entity whose shares, stock or debt are quoted or listed on a recognized stock
exchange, or are marketed under the regulations of a recognized stock exchange or other
equivalent body.
a.   Recognized entity
b. Quoted entity
c. Public sector entity
d.  Listed entity 
5. A process comprising an ongoing consideration and evaluation of the firm’s system of
quality control, including a periodic inspection of a selection of completed engagements,
designed to enable the firm to obtain reasonable assurance that its system of quality
control is operating effectively
a. Monitoring 
b. Peer review
c.  Inspection
d.   Engagement quality control review

6. A basic objective of a CPA firm is to provide professional services that confirm with
professional standards. Reasonable assurance of achieving this basic objective is attained
through
a.  Continuing professional education
b.   A system of peer review
c.  A system of quality controls 
d. Compliance with GAAS
7. Actions and messages that encourage a culture of quality (i.e., recognition and reward for
high quality work) are communicated through:   

a.  Partner and staff appraisal procedures

b. Training seminars, meetings, formal or informal dialogue, mission statements
c.  All of these 
d.  Newsletters and briefing memoranda, internal documentation and training materials

8. Regarding identified threats to independence, appropriate action by the firm and the
relevant engagement partner includes the following, except:
a.   Withdrawal from the engagement
b. Application of safeguards to eliminate threats to independence
c.  Expression of a qualified or adverse opinion on the subject matter under audit 
d. Application of safeguards to reduce threats to independence to an acceptable level

9. The firm should obtain written confirmation of compliance with its policies and
procedures on independence from all firm personnel required to be independent by the
Code of Ethics at least

a. Every 2 years
b.  Annually 
c. Every 5 years
d. Every 3 years

10. The familiarity threat that may be created by using the same senior personnel on an
assurance engagement over a long period of time and the safeguards that might be
appropriate to address such a threat. Accordingly, safeguards may include
 a. Rotation of senior personnel
b. Both a and b 
c. Neither a nor
d. Engagement quality control review

11. The firm should obtain acceptance and continuance information as it considers necessary
in the following circumstances

a. When deciding whether to continue an existing engagement

b.   When accepting an engagement with a new client
c. All of these 
d. When accepting a new engagement with an existing client

12. A firm has obtained information that would have caused it to decline an engagement had
the information been available earlier. Actions available to the auditor include the
following except
a.   Withdraw from the engagement
b. Withdraw from both the engagement and the client relationship
c.   Continue the engagement, since the Code of Ethics requires started engagements to be
finished regardless of subsequent developments and information 
d.   Reporting the information and its implications to the person(s) who appointed the
CPA

13. The following methods are most likely to develop capabilities and competence
except 
a.  Self-study modules on professional accounting and auditing literature
b.  Professional education
c.  Continuing professional development including training
d. Work experience and coaching by less experienced staff 

14. Supervision includes  

a.  Considering the capabilities and competence of individual members of client

personnel
b. Identifying matters for consultation or consideration by less experienced engagement
team members during the engagement
c.   Addressing all issues arising during the engagement and modifying the planned
approach appropriately
d.    Tracking the progress of the engagement 

15. Review responsibilities are determined on the basis that _______experienced team
members review the work of _______ experienced team members
a. Less, more
b. More, more
c.  More, less 
d. Less, less

16. Consultation is usually undertaken or

a.    Straightforward matters involving accounting and auditing
b. Matters for which there is readily available support
c.  Difficult or contentious matters 
d.   Matters for which the judgement of the engagement leader is deemed sufficient

17. An engagement quality control review is required to be performed

a. At engagement completion after the report is issued

b. Immediately after the re-assessment of control risk
c. For all types of audits, regardless of the subject matter of the engagement
d. For all audits of financial statements of listed entities 

18. What aspects are most important in determining the eligibility of engagement quality
control reviewers
a.  Technical qualifications and objectivity
b. All of these 
c.   Integrity and objectivity
d. Competence and independence

19. In case of differences of opinion among members of a team

a.  The engagement partner shall issue a disclaimer of opinion due to a scope limitation
b. Documentation will be made regarding the unresolved matter, and the auditor will
withdraw from the engagement
c. The report shall not be issued until the matter is resolved 
d. An increase in the audit fee will be requested due to the extension of the time required
to complete the engagement

20. In the case of an audit, final engagement files should be completely assembled not
more than

a. 60 days after the date of the audit report 

b. 30 days after the date of the audit report
c. 10 days after the date of the audit report
d. 10 days after the date of the audit report

21. At least quarterly, the firm should obtain written confirmation of compliance with its
policies and procedures on independence from all firm personnel required to be
independent by the Code and national ethical requirements
 True
  False
22. PSA 220 applies to assurance services in general, while PSQC No. 1 applies only to
audit services
 True
 False

23. An advocacy threat occurs when, by virtue of a close relationship with an assurance
client, its directors, officers or employees, a firm or a member of the assurance team
becomes too sympathetic to the client’s interests.
 True
 False
24. Review responsibilities are determined on the basis that more experienced
engagement team members, including the engagement partner, review work
performed by less experienced team members.
 True
 False
25. Consultation should be recognized as a weakness, and personnel are encouraged to
learn more about difficult or contentious matters.
 True
 False
26. The engagement partner cannot consult with the engagement quality control reviewer
during the engagement.
 True
 False
27. Engagements selected for inspection include at least three engagements for each
engagement partner over all inspection cycle
 True
 False
28. Audit working papers are generally the property of the company whose records were
audited.
 True
 False
29. Auditor's working papers include working papers prepared and submitted by the
client.
 True
  False
30. K PSA 220 has five elements of internal control, versus the six elements mentioned in
PSQC No. 1
 True
 False

Quiz 4

1. The policies and procedures adopted by a firm to provide reasonable assurance that all
audits done by the firm are being carried out in accordance with the objective and general
principles governing an audit of financial statements

a. Quality Controls 
b. Internal Controls
c. General controls
d. Peer Review

2. The firms system of quality control should include policies and procedures that address
each of the following except

a. Monitoring
b. Human resources
c. Relevant ethical requirements
d. Control environment 

3. Which of the following elements of a CPA firm's quality control that should be
considered in establishing its quality control policies and procedures?
I. Ethical requirements
II. Human resources
III. Engagement performance

a. Yes, Yes, Yes 

b. No No Yes
c. Yes No No
d. No Yes No

4. Which of the following is an element of CPA firm's quality control system that should be
considered in establishing its quality control policies and procedures?
 a. Considering audit risk and materiality
b. Managing human resources 
c. Complying with laws and regulations
d. Using statistical techniques
5. Which of the following quality control elements is most closely associated with the
requirement to promote a culture of quality? 

a. Engagement performance
b. Leadership responsibilities for quality within the firm 
c. Monitoring
d. Human resources

6. The statement "Quality Control Polices and procedures should be relevant, adequate,
effective, and complied with" is most closely associated with what control element?

a. Monitoring 
b. Engagement performance
c. Relevant ethical requirement
d. Leadership responsibilities for quality within the form

7. This quality control element requires a firm to establish policies and procedures to
provide it with reasonable assurance that engagements are performed in accordance with
professional standards and regulatory and legal requirements, and that the firm or the
engagement partner issue reports that are appropriate in the circumstances.

a. Monitoring
b. Human Resources
c. Ethical Requirements
d. Engagement performance 

8. The firm shall establish policies and procedures designed to provide it with reasonable
assurance that the firm and its personnel comply with relevant ethical requirements. The
Code of Ethics for Professional accountants in the Philippines establishes the
fundamental principles of professional ethics which include the following except

a. Integrity
b. Relevance
c. Professional Behavior 
d. Objectivity

9. Who should take responsibility for the overall quality on each audit engagement?

a. Engagement Team
b. CPA Firm
c. Engagement Quality Control Review
 d. Engagement Partner 

10. Which of the following quality control objectives would be least important to the auditor?

a. Professional advancement
b. Review and supervision
c. Hiring personnel
d. Determination of audit fee 

11. The firm's system of quality control should include. policies and procedures that address
each of the following elements, except

a. Control environment 
b. Relevant ethical requirements
c. Relevant ethical requirements
d. Human resources

12. The main purpose of implementing quality control policies and procedures is

a. To have a favorable peer review.

b. To standardize the policies and procedures of the audit firms.
c. To comply with regulatory agency
d. To provide reasonable assurance that audit will e conducted in accordance with PSA

13. In pursuing a firm's quality control objectives, a firm should adopt policies and
procedures to enable it to identify and evaluate circumstances and relationships that
create threats or reduce them to an acceptable level by applying safeguards, or, if
considered appropriate, to withdraw from the engagement. Which quality control element
would be most likely to satisfy?
a. Monitoring
b. Leadership responsibilities for quality within the firm
c. Human resources
d. Ethical requirements 

14. A firm of CPAs may use policies and procedures such as notifying. professional
personnel as to the names of audit clients having publicly held securities and confirming
periodically with such personnel that prohibited relations do not exist. This is done to
achieve effective quality control in which of the following areas?
a. Human resources
b. Leadership responsibilities for quality within the firm.
c. Acceptance and continuance of clients. 
d. Ethical requirements
15. The primary purpose of establishing quality control policies and procedures for deciding
whether to accept new client is to

a. Enable the CPA firm to attest to the integrity of the client management.
b. Satisfy the CPA firm's duty to the public concerning the
            acceptance of new clients.
c. Minimize the likelihood of association with clients whose
            management lacks integrity. 
d. Anticipate before performing any field work whether an unqualified
            opinion can be expressed

16. A CPA firm's quality control procedure pertaining to the acceptance of a prospective
audit client would most likely include
a. Inquiry of management as to whether disagreements between the
            predecessor auditor and the prospective client were resolved satisfactorily.
 
b. Consideration of whether the internal control structure is sufficiently effective to permit
a reduction in the required substantive tests
c. Inquiry of third parties, such as the prospective client's bankers
            and attorneys, about information regarding the prospective client and its
management. 
d. Consideration of whether sufficient competent evidential matter
            may be obtained to afford a reasonable basis for an opinion.

17. A quality control policy that requires personnel in the firm to adhere to independence,
integrity, objectivity, confidentiality and professional behavior, relates to
a. Assignment
b. Skills and competence
c. Monitoring 
d. Professional requirements

18. Which of the following is an element of a CPA firm's quality control system that should
be considered in establishing quality control policies and procedures?
a. Considering audit risk and materiality
b. Assigning personnel to engagements 
c. Complying with laws and regulations’
d. Using statistical sampling techniques

19. In pursuing the firm's quality control objectives with respect to assigning personnel to
engagements, the auditor's may use policies and procedures such as
a. Requiring: timely identification of the staffing requirements of specific engagements so
that enough qualified personnel can be made available. 
b.  Evaluate client's upon occurrence at specified events to determine
            whether the relationships ought to be continued.
 c. Establishing at entry levels a policy for recruiting that includes minimum standards of
academic preparation and accomplishments.
d. Designating,. senior qualified personnel to provide advice on accounting or auditing
questions throughout the engagement.

20. In pursuing a CPA firm's quality control objectives, a CPA firm may maintain records
indicating which partners or employees of the CPA firm were previously employed by
the CPA firm's client as this may create threat to CPA's independence. Which quality
control element would this be most likely to satisfy?
a. Assignment
b. Monitoring 
c. Skills and competence
d. Professional requirements

21. This involves informing assistants of their responsibilities and the objectives of the
procedures they are to perform. It also involves informing them of matters such as the
nature of the entity's business and possible accounting and auditing problems that may
affect the nature, timing and extent of audit procedures with which they are involved.
a. Supervision
b. Direction 
c. Review
d. Delegation

22. Which of the following quality control procedures does not relate to skills and
competence?

a. Professional development
b. Hiring
c. Direction
d. Advancement 

23. It is the process designed to provide an objective evaluation, before the auditor's report is
issued, of the significant judgments the engagement team made and the conclusions they
reached in formulating the auditor's report:
a. Monitoring
b. Peer review
c. Engagement of quality control review 
d. Performance review

24. A firm should establish and maintain a system of quality control to provide it with
reasonable assurance that:
 I. The firm and its personnel comply with professional standards and applicable legal and
regulatory requirements.
II. Reports issued by the firm or engagement partners are appropriate in the
circumstances.
a. II only
b. Both I and II 
c. I only
d. Neither I nor II

25. Which of the following is one of the elements of a CPA firm's quality control system?
a. Using statistical sampling techniques
b. Complying with laws and regulations
c. Complying with laws and regulations
d. Delegation 

26. Which of the following is a policy that must be established to comply with the quality
control element of delegation?
a. The continued adequacy and operational effectiveness of quality
            control policies and procedures are to be observed.
b. The firm is to be staffed by personnel who have attained and
            maintain the technical standards and professional competence required to
enable them to fulfill their responsibilities.
c. Whenever necessary, personnel should seek assistance from
            knowledgeable persons within or outside the firm.
 
d. There is a sufficient direction, supervision, and review of work performed at all levels
to provide reasonable assurance that the work performed meets appropriate standards
quality.

27. Which of the following procedures does not pertain to the quality control policy of
delegation?
a. Provide on- the- job trainings during performance of audits. C.
b.  Provide procedures for maintaining the firm's standards of quality
            for the work performed.
c. Plan to personnel needs of the firm on an overall basis and for individual practice
offices.
d. . Provide procedures for planning audits. 

28. In connection with the element of consultation, a CPA firm's system of quality control
should ordinarily provide that all personnel

a. Provide procedures for planning audits

 b. Review and test compliance with the firm's quality control policies and procedures
c. Have the knowledge required to enable them to fulfill responsibilities assigned
d. Seek assistance from persons having appropriate knowledge, judgment, and authority
levels of

29. Maintaining or providing access to adequate' reference libraries and other

authoritative sources is a procedure most likely performed to comply with the policy of
a. Monitoring
b. Skills and Competence
c. Assignment
d. Consultation 

30. In reviewing the audit work performed, the engagement partner:

a. Need not review all audit documentation, but may do so. 
b. Must review all audit documentation.
c. Need not review all documentation
d. Must ask the staff performing the audit work to sign the audit report.

31. The work performed by the assistants should be reviewed by personnel of at least equal
competence to consider all of the following except:

a. The objectives of the audit have been achieved. 

b. The conclusions expressed are consistent with the results of the work performed.
c. The engagement personnel maintained independence in the performance of the
examination.
d. The work was adequately performed and documented

32. Quality control policies and procedures should provide the firm reasonable assurance that
the policies and procedures relating to the other elements of' quality control are being
effectively applied. This statement defines the quality control element of
a. Independence, integrity, and objectivity
b. Monitoring 
c. Assignment
d. Planning

33. The firm shall obtain written confirmation of compliance with its policies and procedures
on independence from all firm personnel required to be independent by relevant ethical
requirements

a. At least semi-annually

b. At the completion of each engagement
c. At least annually 
 d. At least monthly

34. The firm shall establish policies and procedures designed to provide it with reasonable
assurance that engagements are performed in accordance with professional standards and
regulatory and legal requirements and that the firm or the engagement partner issue report
that are appropriate in the circumstance. Such policies and procedures shall include:

a. Supervision responsibilities
b. All of the choices 
c. Review responsibilities
d. Matters relevant to promoting consistency in the quality of engagement performance

35. Which of the following statements is false?

a. . The firm should obtain, written confirmation of compliance with its policies and
procedures on independence from all firm personnel required to be independent by
the Code of Ethics.
b. The firm's quality control policies and procedures need not be documented and
communicated to the fine's personnel. 
c. The firm should establish policies and procedures designed to provide it with
reasonable assurance that the firm and its personnel comply with relevant ethical
requirements
d. The firm should establish policies and procedures requiring appropriate documentation
to provide evidence of the operations of each element of its system of quality control.

36. The objective of the quality control policies to be adopted by the audit firm will
ordinarily incorporate:
I. Skills and Competence
II. Monitoring
III. Professional Requirements
a. Yes, No Yes
b. Yes, Yes Yes 
c. Ye Yes No
d. No Yes Yes

37. The nature and extent of CA firm;s quality control policies and procedures depend on
I. The CPA firm's
II. The nature of CPA firm's practice
 III. Cost Benefit Considerations

a. Yes, No Yes
b. Yes, Yes Yes 
c. Ye Yes No
d. No Yes Yes
38. Quality control policies and procedures should be implemented at
I. Level of the audit firms
II. Individual audits
Select one:
a. Yes,Yes 
b. Yes,No
c. No,No
d. No,Yes

39. An audit firm should implement quality control policies and procedures designed to
ensure that all audits are conducted in accordance with PSAs or relevant national
standards or practices. These policies and procedures should be implemented

a. On the individual audits only

b. At the audit firm level only
c. Both at the audit firm level and on individual audits. 
d. Either at the audit firm level or on individual audits

40. Which of the following is not one of the major concerns of the auditor when establishing
control policies and procedures?

a. Ethical requirements
b. Independence
c. Engagement performance
d. Billing arrangement 

SW 3

1. The Code of Ethics for Professional Accountants in the Philippines is

a. Mandatory for CPAs in Government

b. Mandatory for CPAs in public practice
c. Not mandatory
d. Mandatory for all CPAs 

2. Which of the following statements best describes why the profession of CPAs has
deemed it essential to promulgate a code of professional ethics and to establish a
mechanism for enforcing observation of the Code?
 a.  An essential means of self-protection for the profession is the establishment of flexible
ethical standards by the profession  
b.  A requirement of most state laws calls for the profession to establish a code of ethics
c. A pre-requisite to success is the establishment of an ethical code that primarily defines
the professional’s responsibility to clients and colleagues
d. A distinguishing mark of a profession is its acceptance of responsibility to the public

3. IFAC stand for:

a. Integrated Federation for Assurance

b. International Federation of Accountants 
c. International Foundation of Accountants
d. International Federation of Auditors
4. Suppose that a national statutory requirement in the Philippine setting is in conflict with a
provision of the IFAC Code. In this case:

a. There will be no ruling for that particular requirement

b. Both are applied simultaneously
c. The IFAC Code requirement prevails
d.  The national statutory requirement prevails 

5. An inadvertent violation of the Code of Ethics, depending on the nature and significance
of the matter, may not compromise compliance with the fundamental principles provided,
once the violation is discovered

a.  A disclaimer of opinion is issued to the client as a result of the violation

b.  The engagement is promptly transferred to another professional accountant who has
not committed the violation
c. The violation is corrected promptly and any necessary safeguards are applied. 
d. The CPA withdraws from the specific professional service involved
6. The state of the mind that permits the provision of an opinion without being affected by
influences that compromise professional judgement

a. Integrity
b. Objectivity
c. Independence of mind 
d. Professional skepticism

7. The avoidance of facts and circumstances that are so significant a reasonable and
informed third party, having knowledge of all relevant information, would reasonably
conclude a CPA’s integrity, objectivity or professional skepticism has been compromised

a.  Independence in appearance 
b. Principle of segregation
 c.  Preemptive estoppel
d.   Functional integrity

8. A CPA should maintain objectivity and free of conflicts of interest when performing:

a. Audits, but not any other professional services

b. All professional services 
c. All attestation and tax services, but not other professional services
d. All attestation services, but not other professional services
9. May occur as a result of the financial or other interests of a professional accountant or of
an immediate or close family member

a. Self-review threat
b. Familiarity threat
c.  Self-interest threat 
d. Advocacy threat

10. May occur when a previous judgment needs to be re-evaluated by the professional
accountant responsible for that judgment

a.  Self-review threat 
b. Advocacy threat
c. Self-interest threat
d. Familiarity threat

11. May occur when a professional accountant promotes a position or opinion to the point
that subsequent objectivity may be compromised

a. Familiarity threat
b.  Self-review threat
c. Advocacy threat 
d. Self-interest threat

12. For assurance engagements provided to an audit client, the following should be
independent of the client

a. Network firms
b. All of these 
c. The firm
d.  The members of the assurance team

13. The rendering of two or more types of professional services concurrently

 a. Does not by itself impair integrity, objectivity or independence 
b. Is a violation of the code of ethics
c. Would impair integrity, objectivity or independence, or the good reputation of the
profession
d.  Is consistent with the practice of public accountancy

14. One difference between auditors and professionals is that most professionals

a. Need not be concerned about remaining independent 

b. Aren’t expected to act in the public interest
c. Don’t have requirements for continuing education beyond college
d. Don’t have to pass rigorous examination

15. Appropriate safeguards during client acceptance may include

a. Securing the client’s commitment to improve corporate governance practices or

internal controls
b.  Obtaining knowledge and understanding of the client
c.  Obtaining knowledge and understanding about the client’s owners, managers and
those responsible for its governance and business activities 
d. All of these
16. The nature and significance of threats may differ depending on whether they arise in
relation to the provision of services to a client. In which of the following types of clients
would the Revised Code provide the strictest set of requirements regarding
independence?

a. A financial statement audit client 

b. A non-assurance client
c. A non-client
d. A non-financial statement audit assurance client

17. In which of the following situations would a CPA be in violation of the rules of
professional ethics in determining professional fees?

a. A fee which is lower compared to the fee charged in the prior year similar services
b. A fee that is based on 10% of the client's adjusted net income for the current year. 
c. A fee based on appropriate rates per hour or per day for the time of each person
engaged n performing professional services
d. A fee based on appropriate rated per hour , where the organization and conduct of
the CPA and the services provided to the clients are well planned, controlled and
managed.

18. A CPA in business may be

a. A volunteer or another working for one or more employing organization

 b. A partner, director (whether executive or non-executive) or an owner manager
c. A salaried employee
d. Any of these 

19. A CPA in business or an immediate or close family member may be offered an

inducement or pressured to offer inducements. Inducements may take various forms
including

a. Inappropriate appeals to friendship or loyalty

b.  Preferential treatment
c. Gifts and hospitality
d. Any of these 

20. Only CPAs in the public practice in the Philippines are expected to comply with the
requirements of the Code of Ethics
 True
 False
21. A professional accountant in public practice may readily assume custody of client
monies or other assets
 True
 False
22. Independence of mind and in appearance is necessary to enable the professional
accountant in public practice to express a conclusion, and be seen to express a
conclusion, without bias, conflict of interest or undue influence of others
 True
 False
23. For financial statement audit clients, only the members of the assurance team and the
firm (but not the network firm) are required to be independent of the client
 True
 False
24. The period of the engagement starts when the assurance team begins to perform
assurance services and ends when the assurance report is issued, except when the
assurance engagement is of a recurring nature
 True
 False
25. A professional accountant in business has, as paramount responsibility, the furtherance of
all aims of their employing organization
 True
  False
26. Competence as a CPA includes warranting the infallibility of the work performed
 True
 False
27. The last remedy in case of ethical conflict is to discuss the matter with the immediate
superior of the parties involved
 True
 False
28. Objectivity in the Code refers to a CPA’s ability to be unyielding in all matters dealing
with auditing procedures
 True
 False
29. A professional accountant in business should neither manipulate information nor use
confidential information for personal gain
 True
 False
30. A professional accountant in business is allowed to support the achievement of all the
legitimate aims of the employer whom the professional accountant serve
 True
 False
31. A CPA under subpoena may be forced to divulge confidential information concerning his
client
 True
 False
32. In the context of the Code of Ethics, accepting or paying of referral fees are not allowed
in the Philippines
 True
 False
33. In cases where a CPA, while performing tax service for a client, learns of a material error
in a previously filed tax return, he should inform the BIR of such error committee
 True
 False
34. A CPA may voluntarily testify against his client in a third party litigation involving the
client
  True
 False
35. Diligence encompasses the responsibility to act in accordance with the requirements of an
assignment, carefully, thoroughly and on a timely basis.
 True
 False
36. One of the causes for an external auditor to lose his independence is the client’s non-
payment of his audit fees for more than a year
 True
 False
37. A self–interest threat may occur when, because of a close relationship, a professional
accountant becomes too sympathetic to the interests of others
 True
 False
38. Where it is not possible to reduce the threats to an acceptable level, a professional
accountant in public practice should decline to enter into the client relationship
 True
 False
39. A professional accountant in public practice will ordinarily not need to obtain the clients
permission, preferably in writing, to initiate discussion with an existing accountant.
 True
 False
40. Prior to the beginning the field work on a new audit engagement in which a CPA does
not posses expertise in the industry in which the clients operates, the CPA should
 True
 False

a. Design special substantive tests to compensate for the lack of industry experience
b. Engage financial experts familiar with the nature of the industry.
c. Reduce audit risk by lowering the preliminary levels of materiality.
d. Obtain a knowledge of matters that relate to the nature of the entity's business.